Russia Rejects Ukraine Plan To Cut Gas Import Volume

MOSCOW, Russia -- Russian company Gazprom on Thursday rejected Ukraine's demand to cut the volume of natural gas it has contracted to import this year, arousing concern about a potential conflict that could disrupt flows of Russian gas to Europe.

The ownership of Ukraine's pipeline system, through which Russia used to ship 80 percent of its gas exports to Europe, is also a subject of talks.

"The time for discussion on contract volumes in the new year has passed. And, unfortunately, we must remind our Ukrainian friends again that the terms of gas delivery are determined only by contract, and cannot be changed unilaterally by this or that letter," Gazprom spokesman Sergei Kupriyanov said in emailed comments.

Ukrainian state energy firm Naftogaz issued its own statement insisting it had the right to cut imports.

A debate between Moscow and Kiev over their gas trade relationship has grown increasingly shrill in recent weeks as a deal to cut the financial burden of Russian imports on Kiev has eluded them, driving renewed speculation about a possible gas war.

In the past, disputes between Moscow and Ukraine, across which pipelines take gas exports to Europe, have led to temporary cuts in supplies to the European Union, which is now seeking alternatives to reduce its dependence on Russian gas.

Then, the debate centred largely on price.

Now, Gazprom's Kupriyanov said, it is about volume.

"It seems our Ukrainian partners will not negotiate on the price level for gas in 2012. Apparently it suits them. They will try to agree on volumes for 2013 in the established contractual order," Kupriyanov said.

Ukraine has asked Gazprom to reduce the volumes of gas it sells to the former Soviet republic, whose gas bill last month amounted to $1 billion, an amount the fragile economy can ill afford.

Ukrainian authorities say they will insist on cutting Russian gas imports to 27 billion cubic metres (bcm) this year from an estimated 40 bcm last year.

But Gazprom, Russia's pipeline gas export monopoly, insists this level is too low.

"According to the contract, a change in annual volumes cannot exceed 20 percent. In 2012, as everyone knows, the contractual supply volume stands at 52 bcm and cannot be cut to 27 bcm even in theory," Gazprom spokesman Sergei Kupriyanov said.


Naftogaz, in turn, said in a statement it had asked Gazprom last May to reduce 2012 supplies to 33.75 bcm and could further reduce the volume by 20 percent, yielding the 27 bcm figure.

"Naftogaz states that it has warned Gazprom about cutting gas purchases in 2012 in a timely manner, that is six months before the start of the year, and fully in accordance with the terms of the contract," it said.

Petr Grishin, an analyst at Russian brokerage VTB Capital said in a note the dispute over volumes was "potentially problematic".

"...We saw the first signs that gas relations between Russia and Ukraine might again deteriorate beyond ordinary bargaining and inconsequential muscle flexing to something more material: disagreements over how much Ukraine owes Russia for current deliveries," Grishin said.

Russia and Ukraine have been engaged in months of negotiations on gas prices, which stand at $416 per thousand cubic metres in the first quarter of 2012, according to a Ukrainian government source.

Ukraine considers a fairer price to be $250.

The ownership of Ukraine's pipeline system, through which Russia used to ship 80 percent of its gas exports to Europe before the launch of the Nord Stream pipeline across the Baltic last November, is also a subject of talks.

Source: XE